PARKSON : Maintain BUY at RM5.76, TP at RM6.64

Parkson still chalking up profit

Parkson Holdings Bhd
(Nov 16, RM5.80)
Maintain “buy” at RM5.76, target price at RM6.64: Parkson Holdings’ 1QFY11 results were in line with our forecast and consensus estimates of RM373.6 million and RM370.3 million respectively.

Parkson’s 1QFY2011 revenue and net profit increased by 2.3% to RM656.5 million and 17.7% to RM76.2million year-on-year (y-o-y) respectively, attributed to a 6% growth in commissions from concessionaires to RM371 million.

Direct sales dipped 1.9% y-o-y to RM255.3 million, in line with the group’s strategy to shift from direct to concessionaire sales.

Apart from new openings, the stronger results were attributed to the impressive same-store-sales (SSS) growth in China (+10.9%), Malaysia (+9.1%) and Vietnam (+20%), which was at least in line with management’s SSS growth guidance of 10% for China, 5% to 6% for Malaysia and 15% to 20% for Vietnam.

If not for the stronger ringgit, which has appreciated by 10% and 16% against the renminmbi and Vietnamese dong, net profit would have surged by 28.4%. On a quarter-on-quarter basis, its top and bottom line improved by 5.8% and 2.7% respectively, as sales in the current quarter were boosted by the Hari Raya festive season.

Commission rate was flat at 20.8% y-o-y while direct sales margins expanded slightly to 16.7% from 15.9%. Overall merchandise gross margin was flat at 20.3% in 1QFY2011 versus 20.2% in 1QFY2010.

In tandem with the stronger merchandise gross margin and higher other operating income, earnings before interest and taxation (Ebit) margin rose 1.1 percentage points to 27.5%.

In FY2011, the locations earmarked for new outlets in China are Beijing, Zhejiang, Zigong and Baoding. In Malaysia, there are tentatively two new outlets in the pipeline — in Festival City, Jalan Genting Klang, and First Avenue in Penang, while one new outlet is slated to open in Ho Chi Minh city, Vietnam, this December.

Given that the results were in line with our forecast, we maintain our FY2011 and FY2012 earnings estimates at RM373.6 million and RM444.3 million respectively. Our target price is maintained at RM6.64, based on an RNAV of 24 times PER for its China operation, 12 times PER for its Malaysia operation and 10 times PER for both Vietnam and the excluded stores. — OSK Research, Nov 16